CULTURAL STEREOTYPES
AND NORM OF
RECIPROCITY
11/03/2014
1
Allingham and Sandmo
Model
Allingham and Sandmo (1972):
Tax evasion is a product of the risk of detection and punishment
in the form of tax penalties
Empirical data challenge this purely economic model:
1. Higher level of income reporting than the expected utility
model would predict.
2. “Milano-Palermo puzzle”: compliance in cities, like Milan
and Palermo, under the same fiscal and enforcement regime
should be similar, but findings disconfirm this prediction
2
“Milano-Palermo puzzle”
•
•
Since Milan and Palermo are under the same fiscal and enforcement regime, the
Allingham and Sandmo model predicts a similar level of compliance.
BUT this prediction is disconfirmed by empirical evidence.
10%
Vs
66%
Tax evasion
3
WHY?
The geographical dimension of tax evasion has received different
explanations:
– tax evasion is a compensating behavior related to the level
of services provided;
– manifestation of inadequate civic concern (Putnam et al.
1993);
– reciprocity to other taxpayers : citizens choose to contribute
to the common good by paying their taxes, if they think (or
they know) that others are doing the same (Fishbacher et al.
2001).
4
How to test these
predictions?
The behavioral diversity among Italian regions
concerning tax behavior may be due to
1) regional differences in the perception of the
efficiency of the state;
2) regional differences in terms of morality
and values;
3) effect of cultural stereotypes and
information about the behavior of other tax
payers (norm of reciprocity) on tax conduct.
Design:
Good and
Bad
Institutions
SVO
New design: cultural
stereotypes and norm of
reciprocity
5
The “cultural stereotypes and norm
of reciprocity” design is aimed to
test:
•
•
•
•
PRESENCE AND EFFECT OF CULTURAL STEREOTYPES ON TAX
PAYERS BEHAVIOR: Test if any difference in terms of tax conduct among cities
set in different Italian regions is perceived by subjects (i.e., perception of cultural
stereotypes) and how this perception affects tax payers’ decisions.
EFFECT OF INFORMATION ABOUT THE CONDUCT OF OTHERS ON TAX
PAYERS BEHAVIOR (norm of reciprocity): Test if receiving information about
the behavior of other tax payers has any effect on subjects’ willingness to pay.
EFFECT OF INTRODUCING FISCAL FEDERALISM: Test the effect on tax
payers’ behavior when introducing fiscal federalism in Italy, i.e., taxes are collected
at a regional basis and money spent where collected.
PRESENCE OF REGIONAL DIFFERENCE IN VALUES AND ATTITUDES
TOWARDS OTHERS and how these may affect subjects’ willingness to pay
taxes.
6
20 subjects
Milan
Rome
20 subjects
Due to the complexity of the experiment, the program will not be in Ztree
7
Milan
Salerno
8
Rome
Salerno
9
Experiment: 10 stages
• Clerical Task
• Stages 1-3: COMMON POT (ITALIAN ACTUAL
SITUATION)
• Clerical Task
• Stages 4-7: SEPARATE POT (FISCAL FEDERALISM)
• Stage 8: Risk task
• Stage 9: SVO
• Stage 10: Result
• Stage 11: Questionnaire
10
Clerical task
• Subjects will perform the first clerical at the very beginning of
the experiment
• 2 minutes (practice round)
• 7.5 minutes (real clerical task)
11
Stage 1
•
Round1:
–
Information about auditing and punishment
(5% pun probability)
– COMMON FUND (i.e., the 2 groups are
informed that money collected through
taxation will be put in a general fund,
doubled and redistributed to all participant
equally )
•
•
Round2: subjects are asked to report a
certain amount of their income - 0% and
100% - and a tax rate of 30%.
Round3: elicitation of expectations about
separate compliance: expectations on the
behavior of players belonging to group x and
y separately (incentivized)
The 2 groups are informed that
money collected through taxation
will be put in a general fund, doubled
and redistributed to all participant
equally
How much do you expect members of
your own group and members of the
other group declared on average in
this stage?”
0%;
10-30%;
30-60%;
60-90%; 100%
12
Stage 1
How:
AIMED TO TEST:
PRESENCE OF CULTURAL STEREOTYPES:
EFFECT OF CULTURAL STEREOTYPES ON SUBJECTS’
BEHAVIOR:
IF RESULTS ARE DUE TO CULTURAL STEREOTYPES or
SIMPLY TO GROUPNESS?
Elicitation of expectations
about separate compliance
(i.e., compliance of group x
and group y).
Comparing the results of
Stage1 with another
treatment S1 with 2 group of
subjects belonging to the
same region/city
Comparing the results of
S1with another treatment S2
with only 1 group of subjects
from the same region
13
Stage 2
•
Round1:
–
Information about auditing and
punishment (5% pun probability)
– COMMON FUND
– Information about common compliance
(i.e., not divided by groups)
•
•
Round 2: subjects are asked to report a
certain amount of their income - 0% and
100% - tax rate of 30%
Round3: elicitation of expectations
about separate compliance:
expectations on the behavior of players
belonging to group x and to group y
(divided by group)(incentive for the accuracy
of the answer and feedback about its accuracy at the
end of experiment)
Subjects are provided with the
following information: in stage 1, the
average level of compliance of the 2
groups has been …
How much do you expect members of your own
group declared on average in this stage?
0%;
10-30%;
30-60%;
60-90%; 100%
…and members of the other group?
14
Stage 2
AIMED TO TEST:
EFFECT OF INFO ABOUT COMMON
COMPLIANCE ON SUBJECTS’
EXPECTATIONS AND BEHAVIOR:
POSSIBLE OUTCOME:
The two groups influence each other and
converge to a common behavior (conditional
compliance): a decrease of compliance in the
group which believes to be more compliant
(negative effect) and/or an increase of
compliance in the group which believes to be less
compliant (positive example) (norm of
reciprocity in place).
HOW:
Comparing subjects’
choice and their
expectations in
S1with those of S2
15
Stage 3
•
Round1:
–
Information
about
auditing
and
punishment (5% pun probability)
– COMMON FUND
– Information about separate compliance
(i.e., divided by group)
•
•
Round2: subjects are asked to report a
certain amount of their income - 0% and
100% - tax rate of 30%.
Round3: elicitation of expectations about
separate compliance: expectations on the
behavior of players belonging to group x
and to group y (divided by
group)(incentivized)
Subjects are provided with the
following information: in stage 2,
the average level of compliance of
your own group and of the other
group has been …
How much do you expect members of your
own group declared on average in this
stage?
0%;
10-30%;
30-60%;
60-90%; 100%
…and members of the other group?
16
Stage 3
AIMED TO TEST:
EFFECT
OF
INFO
ABOUT
SEPARATE
COMPLIANCE ON BELIEFS AND BEHAVIOR
POSSIBLE OUTCOME:
Knowing that its own group level of compliance is
higher/lower than that of the other group may lead either
to
HOW:
Comparing subjects’
choice and their
expectations in
S2with those of S3
EFFECT ON THE CHOICE:
1) GROUPS CONVERGENCE (norm of reciprocity in
place).
2) GROUPS POLARIZATION and EMERGENCE OF
GROUP IDENTITY.
EFFECT ON EXPECTATIONS:
1) ADAPTIVE HOPES AND FEARS: confirmed
empirical expectations will lead one to hold more
EXTREME empirical expectations in the future: i.e.,
subjects express through their expectations their hope and
fear about the behavior of the two groups
17
Clerical task
• Subjects will perform the clerical task again
• 7.5 minutes
18
Stage 4
•
Round1:
–
Information about auditing and
punishment (5% pun probability)
– SEPARATE FUNDS
– NO INFO
•
•
Round2: subjects are asked to report
a certain amount of their income 0% and 100% - tax rate of 30%.
Round3: elicitation of expectations
about the level of compliance of its
own group only (incentivized)
The 2 groups are informed that
money collected through taxation
will be put in separate funds,
doubled and redistributed to all
participant of the group equally
How much do you expect members
of your own group declared on
average in this stage?”
0%;
10-30%;
30-60%;
60-90%; 100%
19
Stage 4
AIMED TO TEST:
EFFECT OF INTRODUCING FISCAL
FEDERALISM ON THE BEHAVIOR AND
EXPECTATIONS OF THE 2 GROUPS
POSSIBLE OUTCOMES:
1. Compliance increases in both groups since
the general fund is not shared with ‘strangers’
any more
2. Compliance increases even more in the
group with the higher level of compliance
since the fund has not to be shared with
evaders anymore (crowding in effect)
3. Compliance decreases even more in the
group with the lowest level of compliance
since they know that there is not room for
improvement (crowding out effect
HOW:
SEPARATE POT
20
Stage 5
•
Round1:
–
Information about auditing and
punishment (5% pun probability)
– SEPARATE FUNDS
– Information about the level of
compliance of its own group only
•
•
Round2: subjects are asked to report
a certain amount of their income 0% and 100% - tax rate of 30%.
Round3: elicitation of expectations
about the level of compliance of its
own group only(incentivized)
Subjects are provided with the
following information: in stage
4, the average level of
compliance of your own group
has been …
How much do you expect members
of your own group declared on
average in this stage?”
0%;
10-30%;
30-60%;
60-90%; 100%
21
Stage 5
AIMED TO TEST:
EFFECT
OF
RECEIVING
INFORMATION
ABOUT
THE
BEHAVIOR OF OTHER TAX
PAYERS IN HIS OWN GROUP ON
SUBJECTS’ WILLINGNESS TO PAY
POSSIBLE OUTCOMES:
HOW:
Information about its
own group level of
compliance only
– Reciprocity to other taxpayers :
subjects choose to contribute to the
general fund by paying their taxes, if
they think that others are doing the
same, otherwise they will evade.
22
Stage 6
•
•
•
Round1:
– Information about auditing and
punishment (5% pun
probability)
– Information about separate
compliance
– SEPARATE FUNDS
(depending on the oucome of
the voting)
Round2: subjects are asked to report
a certain amount of their income 0% and 100% - tax rate of 30%.
Round3: elicitation of expectations
about expectations on the behavior
of players belonging to group x and
to
group
y
(divided
by
group)(incentivized)
In stage 5, the average level of
compliance of your own group
and of the other group has been
…
How much do you expect members of your
own group declared on average in this
stage?
0%;
10-30%;
30-60%;
60-90%; 100%
…and members of the other group?
23
Stage 6
AIMED TO TEST:
WHETHER RECEIVING INFORMATION
ABOUT THE BEHAVIOR OF TAX
PAYERS IN THE OTHER GROUP
AFFECTS SUBJECTS’ WILLINGNESS
TO PAY, EVEN WHEN THEY ARE NOT
TOGETHER ANYMORE
POSSIBLE OUTCOMES:
• virtuous people are tempted to behave in
a less virtuous way if they know that
people in other regions are not so honest
• virtuous groups keep their good
behavior because they are proud of
themselves.
HOW:
Info about the 2
groups separaterly
24
Stage 7
•
Round1:
–
Information about auditing and
punishment (5% pun probability)
– Information about separate
compliance
– VOTING FOR RATIFYING OR
NOT THE SEPARATE POT
– SEPARATE/COMMON POT
(depending on the oucome of the
voting)
•
In stage 6, the average level of
compliance of your own group and of
the other group has been …
Round2: subjects are asked to
report a certain amount of their
income - 0% and 100% - tax rate of
30%.
25
Stage 7
AIMED TO TEST:
PREFERENCE FOR FISCAL
FEDERALISM:
• How does the behavior of people in
the other group affect the choice of
ratifying or nor fiscal federalism?
• Which regions prefer fiscal
federalism?
HOW:
•
Info about the 2
groups separaterly
•
Result of voting
about mantaining
or
not
fiscal
federalism
POSSIBLE OUTCOMES:
– 1. Only rich regions want fiscal
federalism,
– 2. also the poor ones
26
Stages 8-11
• SVO: The same as in the baseline experiment
• Lottery
• Results from all of the tasks are shown:
– AUDITING AND PUNISHMENT: Subjects will be informed about
the auditing and punishment received
– EXPECTATIONS: Subjects will receive feedbacks about their
answers and paid for their accuracy
• Questionnaire
27
“Cultural stereotypes and norm
of reciprocity” design
The behavioral diversity among Italian regions
concerning tax behavior may be due to
1) regional differences in the perception of the
efficiency of the state;
2) regional differences in terms of morality and values;
3) effect of cultural stereotypes and information about
the behavior of people living in different regions on tax
conduct.
Design:
Good and
Bad
Institutions
SVO
New
design1
28